A new report from Compass

Stewart Lansley and Howard Reed, Basic Income for All: From desirability to feasibility, Compass, 2019, 40 pp, free to download 

This is another useful report from the Lansley and Reed duo, following their 2016 Compass publication Universal Basic Income: An idea whose time has come? That report tested two costed Citizen’s Basic Income schemes, one that abolished means-tested benefits, and one that did not, and a proposal to fund future Citizen’s Basic Incomes through a social wealth fund. The authors showed that a ‘big bang’ scheme that replaced most of the existing system was not feasible, and recommended a partial scheme grafted onto the existing benefits system. The new report pursues the same agenda and concentrates on feasibility and implementation, because, as the subtitle suggests, the Citizen’s Basic Income debate is moving on from the question of desirability to the question of feasibility and implementation.

Readers should not skip the foreword in this report. It is an important contribution to the debate by Baroness Ruth Lister, Emeritus Professor of Social Policy at Loughborough University. She references Karen Buck MP and Declan Gaffney’s September 2018 article that proposes a Citizen’s Basic Income below subsistence level as preferable to increasing the Income Tax Personal Allowance, and notes that Lansley and Reed’s ‘progressive Partial Basic Income’ would ‘provide a genuine safety net under the safety net … there is no reason why it should add to the complexity of the overall system once it is in place …. [it] would provide a modicum of basic economic security in an insecure world’.

The report rehearses some of the usual reasons for implementing a Citizen’s Basic Income – a degree of certainty in a less secure world, personal empowerment, and a reduction in means-testing – and lists some entirely sensible criteria for a ‘feasible and progressive basic income’. It should

  • Be paid to everyone, without condition, and cannot be withdrawn
  • Be progressive (raise the incomes of the poorest while reducing the gap between the top and bottom) and reduce the level of poverty and inequality
  • Be high enough to make a material difference to people’s lives, including reducing the risk of destitution
  • Raise the level of universality in the social security system, while reducing reliance on means testing
  • Be affordable
  • Minimise losses for low-income households (some losses to some households is inevitable with any system change)
  • Minimise the amount of disruption involved in moving to a new system of income support (by retaining much of the existing system at least initially and grafting basic income payments onto it)
  • Enjoy broad public support (essential for political feasibility) based around an extensive national debate and public education. (p. 15)

The report proposes two complementary routes to implementation. The first, ‘model 1’, is a ‘fast track’ route, which would establish a Citizen’s Basic Income scheme with a working age Citizen’s Basic Income of £60 per week, more for over 65s (£175 per week), and less for children (£40 per week). Child Benefit and the Basic State Pension would be abolished, but other benefits would be retained and recalculated. In order to avoid net household income losses for poorer households, a new Income Tax rate of 15% would be implemented for the first £11,850 of taxable income; and to provide a net income increase for poorer households, the scheme would disregard the first £25 of Citizen’s Basic Income for means-testing purposes. The Income Tax Personal Allowance would be abolished and National Insurance Contributions would be charged on all earned income at 12%, and Income Tax rates would rise by 3p in the £1. Poverty and inequality would be substantially reduced, there would be a negligible number of household net income losses among low income households, fewer households would be on means-tested benefits, and the mean disposable income of households in the lowest income decile would rise by 108%. A useful graph shows that the vast majority of household losses would be among the higher income deciles. The net costs would be £28bn per annum. Lansley and Reed make suggestions as to where the money could be found, and point out that the sum required would simply reverse the cuts made to the social security budget since 2010. Options for phasing in the initial ‘fast track’ scheme are offered, from a starting scheme based on converting the Income Tax Personal Allowance into a cash payment for all, to complete implementation within a single parliament.

It might be worth comparing this initial Citizen’s Basic Income scheme with a similar scheme published by the Institute for Social and Economic Research. This enhances Child Benefit, pays a small Citizen’s Pension on top of the Basic State Pension, employs exactly the same funding mechanism (without the additional low tax rate), has no net cost, generates not dissimilar changes to poverty and inequality indices, and only slightly higher numbers of households in the lowest income quintile losing more than 5% of their net income, and it removes significant numbers of households from means-tested benefits. When the Citizen’s Basic Income is taken into account when means-tested benefits are calculated, it experiences existing disregards rather than its own separate one. The mean increase in net household income in the lowest income decile is 22% rather than 108%. This scheme was the result of imposing two criteria in addition to those imposed by Lansley and Reed: revenue neutrality; and as few changes as possible to the existing system. An added advantage of retaining and enhancing Child Benefit rather than abolishing it and implementing a Child Basic Income is that Child Benefit is not added to the means taken into account when means-tested benefits are calculated, so losses for low income households can be avoided without the need for an additional tax band. But perhaps the most significant difference is the net cost: almost zero for the Institute for Social and Economic Research scheme, and £28bn per annum for the Compass first stage scheme.

Lansley and Reed’s second route, ‘model 2’, the ‘slow track’, would build a ‘citizen’s wealth fund’ to the value of £650bn, the proceeds of which would fund a growing Citizen’s Basic Income. This would enable the original ‘partial’ Citizen’s Basic Income to become a subsistence-level Citizen’s Basic Income, paying £80 per week to working age adults, and generating significant additional decreases in poverty and inequality and in net income losses among low income households. The mean household disposable income in the lowest income decile would rise a further 24% to 132% above the current level.

The report suggests that the second slower route would result in a ‘durable’ Citizen’s Basic Income. Not necessarily, because the proceeds of a citizens’ wealth fund could easily be diverted to some other purpose, or contributions to the fund could cease. It is rather the initial route that would be more likely to produce a durable Citizen’s Basic Income, simply because the Citizen’s Basic Incomes would be mainly funded by changes to the current tax and benefits system – funds that would have to be used for the Citizen’s Basic Incomes if households were not to suffer unsustainable losses – and not by funds that could be put to other uses. Political realities would protect the initial ‘fast track’ Citizen’s Basic Income, but not the additional ‘slow track’ one.

Appendices describe the microsimulation process by which the results for model 1 have been obtained; the impact on pensioners of models 1 and 2; and the effects of converting the Income Tax Personal Allowance into a flat rate cash payment.

One minor quibble: the Scottish debate about pilot projects has reached the ‘feasibility study’ stage, not ‘detailed proposals’.

As always with Lansley’s and Reed’s publications, this is a most useful contribution to the Citizen’s Basic Income debate. It will be particularly useful to the now extensive discussion about the feasibility and implementation of Citizen’s Basic Income, and as a recognition that a consensus is emerging around the kind of initial Citizen’s Basic Income scheme that it would be feasible to implement in the short to medium term.